Massachusetts’ New Equal Pay Law

Last month, Massachusetts Governor Charlie Baker signed into law the “Act to Establish Pay Equity”, which will go into effect starting July 1 of next year. The Act is considered ground-breaking in the U.S. for its additions to the state existing equal pay legal framework.

The Act has three main provisions that add to or change existing equal pay law. The first provision, which is creating all the news, creates a new prohibition against employers from asking prospective employees for their salary history. The purpose of this provision is to end ongoing pay disparity when employees who are paid less than their counterparts move jobs. Preventing prospective employers from asking for salary history should hopefully prevent pay disparity from continuing into a new job.

This provision does not prevent a prospective employee from volunteering their salary history (although employers should not try and skirt around the law by soliciting a prospective employee to volunteer that information – it should be solely of the applicant’s own volition). Nor does it prevent an employer from verifying that volunteered salary history with the prospective employee’s former employers. However, the Act does not speak as to whether an employer may ask prospective employees for their salary expectations (i.e., what they expect to be paid in the position they are applying for). We will likely have to wait for further guidance from the OAG on this point.

A subsection of the first provision also prohibits employers from having “pay secrecy” policies. As a result, employers cannot discipline employees for asking their co-workers about the pay and benefits they receive. Of course, an employer is not required to inform an employee of the pay and benefits his or her co-workers receive.

The Act creates a private right of action in employees for violations of the prohibition on salary history questions and pay secrecy policies. Unfortunately, the damages that could be recovered for violation of the salary history prohibition are unclear at this point.

The second provision of the Act amends Massachusetts’ existing equal pay laws to clarify what kind of pay discrepancies between “comparable work” are justifiable. The Act explicitly allows for pay discrepancies based on:

  •           Seniority, although employers may not deduct time taken off pursuant to FMLA leave or maternity and paternity leave from an employee’s seniority
  •           Geography
  •           Education or training
  •           Job performance based on sales, revenue, or other quantifiable metrics
  •           “Merit” based systems

“Merit” based systems will likely prove to be an avenue of litigation for aggrieved employees, as poorly-designed systems leave open the possibility for gender-based disparities.

The second provision also amends the statute of limitations for equal pay claims from one year to three years, with a new three-year statute of limitations applicable to each paycheck that violates the equal pay laws. The Act also clarifies that pay discrimination claims are not subject to the administrative filing requirement with the Massachusetts Commission Against Discrimination.

Finally, the Act reaffirms that employers have an obligation to eliminate gender-based pay discrimination. However, it also now provides an affirmative defense against equal pay litigation if the employer can show that it, within the past three years prior to the commencement of litigation, has completed a good faith self-evaluation of its pay practices and has made “reasonable progress” in eliminating gender-based pay discrepancies. An employer is not entitled to the defense if it cannot show that its self-evaluation was reasonable in scope or that it has made reasonable progress in eliminating any gender wage gap. Unfortunately, the vagueness of this affirmative defense will probably lead to litigation in every wage discrimination case over whether an employer’s efforts were “reasonable”. It should also be noted that the affirmative defense is only available against claims of wage discrimination, and not against claims of violations of the prohibitions against salary history questions or pay secrecy policies.

Startups are uniquely positioned to implement these new changes, since they are on the “ground floor” hiring their first employees. However, founders should be careful not to carry over things from the way they were done at their old “real job”, like asking applicants for salary history or discouraging employees from sharing details of their compensation packages with one another. In any event, when hiring its first employees, a startup should consult with an attorney to establish best practices for hiring, setting compensation, and other aspects of human resources.

Legal Protections Protect Nothing If You Can’t Afford to Enforce Them

If you’re an entrepreneur, you’ve probably heard somewhere that you need a non-disclosure agreement when you share your company’s “secret sauce” with prospective investors or contractors. Or that you need to make sure that your key employees are under a non-compete agreement (or at the very least, non-use/non-solicitation/no-hire agreements). Or that you need patents or trademarks for your company’s IP. So you spend the time and money to get these legal protections in place (you probably spend even more to get an attorney to do it). And once it’s done, you think you’re protected and covered.

But what happens if someone decides to break those covenants they’ve made with you? Simple, you say – take them to court. But do you know how expensive litigation can get? The answer is: very. And now that agreement you thought was protecting your business isn’t worth the paper it’s printed on if you can’t afford to enforce those protections. Of course, this isn’t to say that you shouldn’t make sure that you have protections like these in your agreements. Sometimes it is worth the cost of the fight to take someone to court enforce your rights. And if your business is successful enough you will actually have the resources to do so – and something worth protecting as well.

The point here is not to simply rely on your legal agreements to protect you if you don’t have the resources or willingness to enforce those agreements if someone wants to break them. Moreover, this is also a gentle reminder to vet who you’re dealing with more carefully, rather than relying on legal agreements to protect you from other parties who may be setting off red flags in the back of your mind. No legal agreement in the world is going to protect you from an unscrupulous party who will look to break your agreement at the first sign of an advantage because they know you can’t afford to fight them. Those are just people you don’t want to be doing business with in the first place, agreement or no. But if you take efforts to make sure you’re working with upright parties on the other side, then you’ll never need to worry about the cost of having to enforce the legal protections in your agreement.

“White-Collar” Overtime Exemption Levels Raised

The U.S. Department of Labor announced last week that, starting December 1, 2016, revised overtime exemption rules in the Fair Labor Standards Act would go into effect. Specifically, the “salary level” for the white-collar overtime exemption would increase from $455 per week (for an annual salary of $23,660) to $913 per week (for an annual salary of $47,476).

The “white-collar” exemption exempts employers from having to pay overtime (or time-and-a-half) to employees for every hour worked over 40 hours in a workweek, provided that the employee is employed in a “professional”, “administrative”, or “executive” capacity, and meets three tests:

  • the “salary basis” test: simply, that the employee is paid a salary or fee, rather than paid an hourly wage
  • the “salary level” test: that they are paid at least the new salary discussed above 
  • the “standard duties” test: varies depending on the capacity the employee is employed in:
    • for “executive”: the primary duty must be managing the enterprise or a customarily-recognized department or subdivision of the enterprise comprising at least 2 full-time employees
    • for “administrative”: the primary duty must be the performance of office or non-manual work directly related to the management or operations of the employer or the employer’s customers, and must also include the exercise of discretion and independent judgment with respect to matters of significance. Certain academic administrative personnel are exempt from the salary level requirements.
    • for “professional”: the primary duty must be the performance of work that requires advanced knowledge in a field of science or learning (usually requiring a degree) or that requires invention, originality, or talent in a recognized field of artistic or creative endeavor. Doctors, lawyers, and teachers are specifically exempt from the salary level requirements 

The DOL also raised the annual salary level for the “highly compensated employee” exemption (subject to a less stringent duties test) from $100,000 to $134,004. 

The salary levels for both the white collar and highly-compensated employee exemptions will now also automatically increase every three years based on inflation.

The FLSA itself only applies to companies that have annual gross revenue of $500,000 or more; companies that are hospitals, residences providing medical or nursing services, or schools are subject to the FLSA regardless of gross revenue. Additionally, regardless of the company’s revenue, employees whose work involves interstate commerce are also subject to the FLSA.

If your startup or your employees are subject to the FLSA and you are currently relying on the white-collar or highly-compensated employee exemptions, you will want to confirm if the salaries you pay to those workers now fall below the new salary level requirements. If so, you have two options: one, increase salaries to the new requirements, or reclassify the employees as non-exempt and begin tracking their hours worked in order to pay overtime if necessary. If you decide to reclassify employees as non-exempt, you can either choose to pay overtime, or control the hours employees work and redistribute them to ensure employees don’t work overtime (including hiring more workers if there is more work than can be handled by your current workforce in a 40-hour week).

Your Employees May Have the Right to See Your Company’s Books

Most startups are usually very private about their books and financials — one of the benefits of being a small, private company instead of a publicly-traded company is that you don’t have to show anyone your books. However, if your company is a Delaware corporation (as many startups are), that may not necessarily be the case, particularly if you’ve issued stock to your employees.

Section 220 of the Delaware General Corporation Law permits any stockholder of a Delaware corporation, upon written demand, to inspect and copy the corporation’s stock ledger, a list of its stockholders, and its “other books and records”, which can include financial records, for any proper purpose. Recently, employees of startups have been exercising their right under Section 220 to inspect their companies’ financial records for the purpose of determining the true value of the equity compensation they’ve been given. 

While some startups do provide their equity-compensated employees with regular statements of business and financial health, if your Delaware-incorporated startup does not do so, be mindful of the fact that your stockholding employees can, under Delaware law, demand to inspect and copy your company’s books. Of course, this is also another reason why it is a best practice to make sure that your employees (particularly your key employees who are compensated with equity) are signed to employment agreements that include confidentiality provisions. In any event, if your company is a Delaware corporation and a stockholding employee does ask to see the company’s books, it may be a good idea to make sure that the information you divulge is protected under a confidentiality agreement.

Further Reading: http://www.wsj.com/articles/startup-employees-invoke-obscure-law-to-open-up-books-1464082202

Regulatory Issues for Your Company’s Website

Whether your company’s website is just a facet of your business, or is the whole point behind your business, your company should be aware of a number of laws and regulations surrounding website, and make sure that your company and website are compliant with them.

DMCA — The Digital Millennium Copyright Act, which was implemented to amend copyright law in response to the growth of the internet. The DMCA can be particularly important for operators of websites that feature user-created content, since users can (knowingly or unknowingly) include copyrighted material in their submissions (website operators are especially on the hook, given that the DMCA’s main innovation was to exempt internet service providers from liability for copyright infringement that occurs through their service). Accordingly, you should make sure that your website has a DMCA takedown policy (typically published as part of the Terms of Service/Use), in which copyright holders can notify you if they believe their material is on your website and permit you to take it down.

COPPA — The Children’s Online Privacy and Protection Act imposes regulations and requirements on operators of websites that are directed at children under the age of 13 (or where the operators have actual knowledge that their website is used by children under the age of 13). Specifically, COPPA requires applicable websites to obtain verifiable parental consent before collecting personal information (even including a name or an email) from children users. COPPA also prohibits applicable websites from presenting advertising for “adult” products, such as alcohol or tobacco.

ADA — The Department of Justice has been working on rules for applying the ADA, or Americans with Disabilities Act, to websites that are subject to the ADA. However, the DOJ has recently reversed its position that websites wouldn’t be subject to the ADA until final rule making is complete, bringing enforcement actions against websites for universities, museums, county courts, and grocery delivery services. Moreover, the DOJ has stated that websites must be accessible to the general public, not just to the actual users of the website. If your company’s website is where your company actually engages in commerce (i.e. where you sell your product; the website itself is your company’s product), then you may want to consider adopting the Web Content Accessibility Guidelines. 

Enforcing Your TOS — Finally, it is important for website operators to remember that their Terms of Service are the contract between them and their users. That being the case, you don’t want to end up like one of the many “browserwrap” cases that have been making headlines over the past few years. Many websites that have tried to enforce their ToS against violating users have had those ToS invalidated by the courts on the basis that the website could not demonstrate that the user affirmatively assented to the to the ToS. As a result, it’s not enough to say that mere use of a website constitutes a user’s acceptance of the ToS. Instead, best practices seem to dictate that users should be presented with the actual text of the ToS, and be required to click an “I accept” or similar button; the website should also have a mechanism for recording the user’s consent.